Fintech Daily Digest

As part of the Monetary Authority of Singapore (MAS) Project Guardian, SBI Digital Markets, UBS Asset Management, and Chainlink completed the implementation of a tokenized fund. They showed how tokenization, smart contracts, and Chainlink infrastructure can automate the fund management process for fund administrators and transfer agents. The pilot demonstrated the possibility for a tokenized fund to maintain its share register on one blockchain while using Chainlink's Cross-Chain Interoperability Protocol (CCIP) to enable the processing of intensive fund lifecycle activities on another blockchain with different underlying security, cost, and efficiency properties.

The Russian Ministry of Industry and Trade has called for a two-year transition period before making merchant acceptance of digital ruble payments mandatory, citing concerns over unprepared infrastructure. The draft law that would make digital ruble payments mandatory for large retailers by July 2025, which could create serious challenges for those businesses. The Ministry particularly emphasized the need for clear operational guidelines, and additional time to finalize software, update information systems, conduct testing, and train staff. https://iz.ru/1797505/2024-11-27/torgovla-zaprosila-dva-goda-na-perehod-k-cifrovomu-rublu

The Bank for International Settlements (BIS) published reports on retail central bank digital currency (CBDC) system design and legal considerations. They were written by a group comprised of the BIS and seven central banks (Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, the Board of Governors of the Federal Reserve System, Sveriges Riksbank and the Swiss National Bank). The system design paper provides perspectives on overall system design and four key issues: privacy, cyber security (including quantum computing), offline functionality and point of sale considerations. The legal paper examines key legal questions, focusing on four areas: the legal classification of retail CBDC; the obligations and liabilities of participants in the retail CBDC ecosystem; privacy and financial crime and cross-border issues.

As part of the ECB wholesale DLT settlement trials, Crédit Agricole CIB simulated cross border payments using a tokenized correspondent banking model with the interbank settlement conducted with the Banque de France's pilot CBDC on its DL3S platform. This experiment tested the potential for corporate clients to manage their real time treasury cash balances 24/7 across jurisdictions.

The European Investment Bank (EIB) issued another €100 million digital bond. using the Banque de France's pilot wholesale central bank digital currency (CBDC) for settlement, as part of the European Central Bank's (ECB's) wholesale DLT settlement trials in central bank money which end this month. This time, Goldman Sachs provided its GS DAP as the tokenization platform for the issuance, with Goldman Sachs Bank Europe acting as joint lead manager alongside DZ Bank and LBBW. https://www.eib.org/en/investor-relations/press/all/fi-2024-14-eib-2nd-digital-bond-eurosystem-explanatory-work

The U.K. Financial Conduct Authority (FCA) outlined its roadmap for crypto-asset regulation, to be implemented by 2026. It plans to publish discussion papers on market abuse and disclosures by the end of 2024, and on stablecoins, trading platforms, staking, prudential crypto exposure and lending by early 2025. The FCA also published the results of a survey that showed that U.K. crypto-asset ownership has grown by 4% in the two years ending in August 2024 to include about 12% of the country's adult population. https://www.fca.org.uk/publications/research/research-note-cryptoassets-consumer-research-2024

Central Bank of Iran Governor Mohammad Reza Farzin reportedly announced that the launch of a digital rial is imminent. A pilot test of the retail central bank digital currency (CBDC) reportedly commenced in July 2024 on the island of Kish, involving two major Iranian banks, Mellat and Tejarat. https://news.bitcoin.com/iran-officially-unveils-central-bank-digital-currency-project/

The Centre for Economic Policy Research (CEPR) posted an article by several Bank for International Settlement (BIS) and European Central Bank (ECB) staffers that explores the reactions of stablecoin capitalization and money market fund assets under management (AUM) to crypto-asset market and US monetary policy shocks. Following a crypto shock, the money market fund AUMs barely budge whereas stablecoin capitalization drops significantly. After a monetary policy tightening, prime money market fund AUMs rise while stablecoin market capitalization substantially declines. As monetary policy tightens, crypto prices fall, the market turns bearish, and investors demand less stablecoins for speculative purposes. This brings into question the role of stablecoins as a crypto safe haven from either crypto or monetary policy and traditional financial market shocks.

Cboe Global Markets will launch cash-settled spot bitcoin (BTC) index options on December 2, 2024. Regulated by the U.S. Securities and Exchange Commission (SEC), they will be based on the Cboe Bitcoin U.S. ETF Index (CBTX), which tracks a basket of U.S.-listed spot BTC exchange-traded funds (ETFs). The options will be cash-settled, so that positions are closed in cash at expiration, removing the complexities of physical ETF delivery. Also, they will be exercisable only on the expiration date ("European style") to eliminate early assignment risk. This follows the November 18 NASDAQ announcement of plans to list options on BlackRock's BTC ETF, after the Commodities Futures Trading Commission (CFTC) cleared the Options Clearing Corporation to oversee the market a few days earlier. https://www.cftc.gov/PressRoom/PressReleases/9008-24 https://www.bloomberg.com/news/articles/2024-11-18/nasdaq-poised-to-list-spot-bitcoin-etf-options-amid-crypto-rally

The Commodity Futures Trading Commission (CFTC) Global Markets Advisory Committee (GMAC), made up of industry participants, voted in favor (27-0) of three recommendations to adopt distributed ledger technology (DLT) and tokenized assets as collateral for margin. Committee members concluded that no changes to regulations, policies and procedures would be required. The proposals would need to be adopted by the full GMAC Committee and it's up to the CFTC to decide whether it proceeds. https://www.cftc.gov/media/11581/GMAC_DAM_UseofDLTasDerivativesCollateral_112124/download

The BIS published a paper that sheds light on how fast payment systems (FPSs) influence the diffusion of digital finance apps, based on a rich dataset on app downloads and use for 86,163 apps in 95 countries over 2012-22. It identifies various mechanisms through which FPS drive finance app adoption, like stimulating competition and innovation in payments, fostering digital finance adoption via learning effects and expanding access to financial services, particularly in emerging market and developing economies (EMDEs) and low income countries (LICs). This effect is particularly evident for apps by technological disrupters, such as fintechs or big techs, relative to those of incumbent financial institutions. Finally, we identify some characteristics of FPS that further amplify digital finance adoption such as the active role of the central bank, open membership and real-time settlement.

The U.S. Treasury Office of Financial Research (OFR) published a paper that examines the scenarios that can increase run risk of crypto-assets, such as Ethereum (ETH), that use proof-of-stake (POW) protocols to validate transactions. It finds that while proof-of-work (POW) protocols are more energy intensive and less scalable, POS requires more capital, and a significant drop in a POS-based crypto-asset price may cause validators to exit their investments. Their exit may impair the tradability of the crypto asset, which in turn may cause more validators to exit, resembling a bank run. In the case of Ethereum, such an event would disrupt activity relying on the Ethereum network, including many crypto firms and DeFi networks. The authors also show that the use of margin only exacerbates this run risk during price declines. If a price decline is steep enough to cause a margin call for investors, those investors must either post additional collateral or sell crypto assets, which could further depress prices.

The Bank for International Settlements (BIS) published a paper that explores the role of participants in providing liquidity on decentralized exchanges (DEXs). DEXes allow participants to buy and sell assets without the need for intermediaries, in theory democratizing liquidity provision. However, using data from the largest DEX (Uniswap V3), it shows that liquidity provision, rather than being the purview of a diffused set of market participants, is confined predominantly to a small group of sophisticated ones. These participants submit orders that mimic bids and asks and are able to extract significantly higher profits compared to their unsophisticated counterparts. They also exhibit considerable skill, extracting higher profits during periods of high volatility by capturing a higher share of trading without incurring additional adverse selection.

Cayman Islands-based Oxbridge Re Ltd. is planning to expand its offering of tokenized reinsurance securities representing fractionalized interests in reinsurance contracts written by its Oxbridge Re NS reinsurance sidecar. This tranche would be on top of the $2.4 million issued in June 2023 through its SurancePlus digital securities subsidiary. Also in July 2024, Oxbridge Re raised $2.88 million for its Epsilon Re sidecar. All use the Avalanche blockchain. [Source: Artemis.bm]

Sveriges Riksbank called for the modernization of its retail payments infrastructure and the creation of processes for secure, efficient and accessible retail payments. More specifically, the central bank argued that the infrastructure for clearing (compilation and processing of payment orders) and settlement (finalization) of retail payments in Swedish kronor needs modernization. It presented its view of the way forward over the next five years. Interestingly, no mention was made of an e-kronor retail central bank digital currency (CBDC).

UBS and Deutsche Bank have reportedly simulated tokenized deposit payments between the banks as part of the European Central Bank (ECB) wholesale distributed ledger technology (DLT) settlement trials. The Bundesbank's Trigger solution, that enables blockchain based systems to link to the Trigger Chain, which in turn initiates a payment on the Target2 payment system in central bank money, was used. Adhara, the technology partner of Fnality, provided the orchestration layer that ensures that all the separate settlement legs of the transaction happen atomically. One of the two trails simulated transactions between Deutsche Bank London and UBS in Switzerland involving pounds and Swiss francs, which were settled using euros.

Banco Central do Brasil has reportedly selected Banco Inter alongside Microsoft Brazil, 7COMm and Chainlink to build a trade finance solution as part of the 2nd phase of Brazil's DREX central bank digital currency (CBDC) experimentation. The solution leverages blockchain technology and oracles to automate supply chain management and improve trade finance processes. The goal of the pilot is to demonstrate the automated settlement of agricultural commodity transactions across borders, across platforms, and via different currencies.

Stablecoin issuer Paxos will gain access to the European Union (EU), by agreeing to buy Finland-based electronic money institution (EMI) Membrane Finance. "The acquisition is subject to regulatory approval [but] upon completion of the acquisition, Paxos will be a fully licensed EMI in Finland and the EU." Membrane's digital assets are regulated by Finland's Fin-FSA and fully compliant with the EU's Markets in Crypto-Assets Regulation (MiCA). This follows Tether's recent investment in Quantoz Payments to support the latter's launch of its EURQ and USDQ MiCA-compliant stablecoins. In July 2024, USDC and EURC issuer Circle claimed that it became MiCA compliant when it attained an EMI license from the French Autorité de Contrôle Prudentiel et de Résolution (ACPR). https://paxos.com/blog/paxos-to-acquire-finnish-e-money-institution-membrane-finance/

Coinbase launched the Coinbase 50 Index (COIN50), a benchmark representing the top 50 digital assets listed on Coinbase Exchange that meet the index's fundamental criteria for inclusion. Crypto traders can use the COIN50 as a benchmark to track broader market trends and gain insight into the overall performance of the crypto economy. Eligible traders can trade this index via a COIN50 perpetual future (COIN50-PERP) with up to 20x leverage on Coinbase International Exchange and Coinbase Advanced.

"Trump Media and Technology Group is in advanced talks to buy Bakkt, the listed crypto firm founded and controlled by New York Stock Exchange owner, Intercontinental Exchange (ICE). That's according to a report by the Financial Times, citing insider sources. This reinforces reports in June that the company was for sale."